The ACA Is Still the Law of the Land (Benefit Minute)

Posted in: Benefit Minute, Employee Benefits

Republican efforts to repeal and replace parts of the Affordable Care Act (ACA) with the American Health Care Act (AHCA) stalled on March 24, 2017 when Speaker of the House Paul Ryan determined he did not have the support needed to pass the bill in the House of Representatives and withdrew it without a vote. Detractors of the bill included all Democratic members of the House, as well as the Freedom Caucus, a conservative group of Republican representatives who felt the bill did not go far enough to repeal the ACA. Moderate Republicans were also concerned by the Congressional Budget Office report which estimated that, by 2026, 24 million more people would be uninsured relative to the number of uninsureds under current law. It appears the administration and the Republican leadership will table current health care reform efforts for now and move on to other agenda items.

A three-pronged approach to repealing and replacing the ACA had been proposed. It included:

  1. Passage of the AHCA (a budget reconciliation bill) to eliminate the ACA’s mandates and penalties, pull back Medicaid expansion, replace current insurance subsidies with an age-based premium tax credit and expand health savings accounts;
  2. Adoption of regulatory reforms to stabilize insurance markets, increase coverage choices, and start bringing down insurance costs; and
  3. Introduction of additional legislation outside of budget reconciliation to reform the medical malpractice system, speed up the approval of generic drugs, allow Association Health Plans and return to the states more authority over health insurance markets and Medicaid.

This third prong would have required at least some support among Democrats to pass in the Senate, and a major concern of the Freedom Caucus was the feasibility of accomplishing this.

What This Means for Employers

The ACA continues to be the law and employers should comply accordingly.  The health insurance Marketplace and related premium tax credits will continue for the foreseeable future, and applicable large employers will be subject to penalties enforced by the IRS if coverage is not offered to at least 95% of full time employees or if the coverage offered is not affordable or does not provide minimum value.  Form 1095-B and Form 1095-C reporting requirements remain in place.

Other taxes and fees implemented under the ACA will continue, including the health insurance tax that was suspended for 2017 and the medical device tax that was suspended for 2016 and 2017.  The AHCA would have permanently eliminated these taxes.

The AHCA would have further delayed the 40% excise tax on high value health plans (the cadillac tax) until 2026.  It is now scheduled to become effective in 2020; however, bipartisan stand-alone legislation to repeal it has been introduced.  In the meantime, employers should continue or restart efforts to assess the potential impact of this tax and develop strategies to minimize its impact.

Fully insured plans in the small group market will still be required to cover all of the essential health benefits and the current rating structure remains in place.  It is unknown whether any of the federal regulatory agencies will take action to ease employer burdens under the ACA or mitigate continuing premium and health care cost increases.

What This Means for Insurers

The Department of Health and Human Services (HHS) will likely focus its regulatory efforts on the individual market.  However, it is not clear whether HHS will work to stabilize the individual market or incapacitate it.  There are political consequences with either approach.

In addition to premium tax credits, the ACA provides for cost-sharing subsidies that reduce deductibles and co-payments for low-income individuals with Marketplace coverage.  Prior to the election of Donald Trump, House Republicans sued the Obama administration, arguing the cost-sharing subsidies were being made illegally because Congress had not appropriated the funds.  The court found in favor of the Republicans, but allowed the payments to insurance carriers to continue while the decision was appealed.  It is now up to the Trump administration to decide whether to move forward with the appeal or drop any further defense of the cost-sharing subsidies, which would then require Congress to appropriate funds to continue them.  Insurers are waiting to learn whether the subsidies will be funded in 2018 before deciding whether to offer Marketplace plans.  Cancellation of the cost-sharing subsidies would be a significant destabilizing force for the Marketplace.

Will Enforcement Be Eased?

President Trump’s Executive Order on January 20, 2017 directed federal agencies to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the ACA that would impose a fiscal burden on any State or a cost, fee, tax penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products or medications.”

The Executive Order was intended to bridge the gap until repeal and replace legislation could be passed.  Now it will be up to the federal agencies to use the regulatory process to provide for short-term relief and make minor changes that will lessen the impact of existing law on employers and individuals.

Long Term Prospects

While the administration and Republican leadership move on to other priorities, backroom talks continue as House Republicans call for unity.  Even if the House could find a way to pass a repeal bill, there is no guarantee it would survive in the Senate.  Senate Republicans may prefer a path that works with Democrats to make lasting changes to the ACA instead of dismantling it.

The ongoing viability of the health insurance Marketplace and individual market may go a long way in determining whether the two parties will come together to find common ground and bipartisan solutions.

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